Articles in Category: Ferrous Metals

North Dakota Senator John Hoeven (R.) said the U.S. Army Corps of Engineers is ready to provide the easement necessary to build the final leg of the $3.8 billion Dakota Access oil pipeline under North Dakota’s Lake Oahe.

Click Here for Current Metal Prices

Hoeven said he spoke with acting Secretary of the Army Robert Speer and Vice President Mike Pence Tuesday.

The Army Corps issued a statement Wednesday saying it had initiated the steps outlined in President Donald Trump’s directive to complete the 1,172-mile crude oil pipeline but that no permit has been granted. A decision will be made “once a full review and analysis is completed” in accordance with the directive, Malcolm Frost, a spokesman, said in the statement.

U.S. Representative Kevin Cramer, a Republican from North Dakota, also said that the Army Corps had notified Congress of its plan to grant the easement. A spokesman for the Standing Rock Sioux tribe and others that have fought against its construction, said Tuesday that it will challenge any suspension of the federal environmental review that previously held up the pipeline. However, the Tribe lost a previous challenge in federal court when a judge approved the final eight miles of the route, noting that the proposed route does not go through tribal lands.

Navarro: Germany Takes Advantage of Undervalued Euro

Peter Navarro, the head of President Trump’s new National Trade Council, recently gave an interview to the Financial Times. The economist told the FT that Germany is using a “grossly undervalued” euro to “exploit” the U.S. The euro has weakened against the dollar over the past two years.

Two-Month Trial: Metal Buying Outlook

He also told the FT that one of the administration’s trade priorities is unwinding and repatriating the international supply chains on which many U.S. multinational companies rely, “It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” he said. “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

PricewaterhouseCoopers recently released its Q4 2016 Deal Insights Report. Among the findings,

  •   For Q4 2016, the total deal value of $12.9 billion for deals with disclosed value greater than $50 million was 12% higher than last quarter and 106% higher than Q4 2015.
  • Deal value in 2016 was driven by M&A activity in China, as eight of the 10 largest deals throughout the year were announced by Chinese acquirers.
  • Over the past three years, 77% of deal activity has occurred locally.

I had a chance to discuss the metals m&a market with Michael Tomera, PwC’s metals division leader, based in Pittsburgh.

Jeff Yoders: Deal volume finally took off in Q4. What did the election have to do with it?

Michael Tomera: A key driver in this global report did have to do with Chinese deals. That was the driver, industry consolidation over there, over the last two quarters. There is definitely optimism for what’s going on with the new administration.

Two-Month Trial: Metal Buying Outlook

Chinese steel industry consolidation, as much of a glimpse as we have of what’s going on in China — it is quite difficult to get exact details and good information out of China — it does, indeed, look like consolidation over there is happening and maybe even the reduction in capacity that they have said they want to do. It does look like that … from the information that is available.

JY: How so? In some of these large mergers, such as between Baosteel and Wuhan Iron and Steel? Or from some other measures?

MT: Generally, I think what a lot of the industry folks have been looking at is the need to curb excess Chinese capacity. The Chinese have said they are trying to do that, cut the capacity, and even if it’s less than the numbers they’re talking about cutting to… there’s going to be an impact on imports into North America.

Click Here for Current Metal Prices

What happens with that, combined with anti-dumping actions, is really going to drive the impact on this market. The anti-dumping regulations are things that people in the North American market are going to continue to look at rather than discussing reductions in Chinese capacity simply because anti-dumping and countervailing duties, and their collection, are things that they can independently verify.

JY: Steel deals took off in Q4, is the steel sector a good place to invest again?

MT: 43 deals in the steel category, 40% of all deals in 2016. It looks like (steel investing is back). There’s been more going in anti-dumping actions in steel than other metals categories. We can’t predict what might happen with steel, aluminum or other individual metals sectors, but it does look like anti-dumping duties will be a factor. It seems like there is a fair amount of capital available among acquirers and private-equities and there is infrastructure planning going on from the Trump administration, so these are the things that have contributed to the increased share values of metals companies, in general, and steel companies in particular since the election.

JY: The mergers and acquisitions market looks healthy, then?

MT: Probably in previous years, we thought deal conditions would be better than they were just yet, particularly at the beginning of ’15. There was a 104% increase in deal value vs. Q1 2015. Now, it really looks like things have turned a corner. There are momentum drivers here. If you look at liquidity, market conditions, infrastructure development in the U.S. with the new infrastructure and trade plans, all of those are good indicators for the metals industries and growth going from 2016 into 2017.

Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported that the U.S. imported a total of 2,686,000 net tons of steel in December 2016, including 2,146,000 net tons nt of finished steel (down 4.3% and up 0.6%, respectively, vs. November final data).

Two-Month Trial: Metal Buying Outlook

For the full year of 2016, total and finished steel imports are 33,009,000 and 26,327,000 nt, down 14.9% and 16.4%, respectively, compared to full year 2015. Finished steel import market share was an estimated 26% in December and is estimated at 26% for full year 2016.

Key finished steel products with significant import increases in December compared to November include oil country goods (up 55%), line pipe (up 38%), sheets and strip all other metallic-coated products (up 27%), tin plate (up 24%), sheets and strip hot-dipped galvanized (up 14%) and hot-rolled bars (up 11%). Tin plate (up 15%) had a significant increase in 2016 vs. the prior year.

Trump Signs Order Mandating Regulations Be Cut

President Donald Trump signed an executive order Monday morning requiring that for every new federal regulation implemented, two must be rescinded.

“This will be the biggest such act that our country has ever seen,” Trump declared moments before signing it in the Oval Office. “There will be regulation, there will be control, but it will be a normalized control where you can open your business and expand your business very easily. And that’s what our country has been all about.”

Click Here for Current Metal Prices

The executive order signing, which fulfills a campaign pledge, comes after the president held a listening session with small-business leaders.

The U.S. steel industry was not alone in experiencing tough years in 2015 and 2016, according to the Financial Times.

Click Here for Current Metal Prices

Compared to 2015, production fell last year in Japan, Russia, South Korea, Germany and Brazil. Among the top 10 producer countries, production increased only in China, Ukraine and Turkey, according to the World Steel Association. Supported by a sharp upturn in real estate investment, steel prices and steel production rose by 1.2% in China, reversing the previous year’s decline. China produced 808.4 million metric tons in 2016 and domestic demand continues to remain robust even as exports face protectionist headwinds.

The world’s number two producer, Japan, however suffered a decline in 2016 of 0.3% to 105 mmt as the third largest steelmaker, India, closed the gap with a whopping 7.4% increase in output to 95.6 mmt. India overtook the U.S. in 2015 when it produced 89 mmt of steel compared to the U.S.’s 78.84 mmt, and is expected to pass Japan in 2017 or ’18 according to the Financial Express as it ramps up output closer to its 122 mmt of capacity. The Indian government has targeted capacity of 300 mmt by 2030 to meet domestic demand from infrastructure and consumption from a rising middle-class.

Despite rising raw material costs last year, many steelmakers remained profitable as both demand and finished steel prices rose. The extent to which we can expect further price increases in 2017 remains to be seen with coking coal prices easing and seaborne iron ore prices currently range bound, but early indications are, with regional variations, that there are likely to be positive price increases this year.

Two-Month Trial: Metal Buying Outlook

The U.S. has benefited from solid demand and the impact of some anti-dumping measures, trends that are likely you have an even greater impact in 2017 is the new administration implements its campaign pledges. A recent survey of leading analysts by the FT suggested that U.S. steel output will increase by 4.4% this year.

Two global steel giants, India and Japan, are headed toward a trade war. For once, one participant in the trade row isn’t the U.S… not directly, at least.

Click Here for Current Metal Prices

Japan, the world’s second-largest producer of steel, has threatened to take India to the World Trade Organization over import restrictions asserted by India. If incoming reports are true, Japan may soon be joined by Taiwan and even Russia.

Despite the excellent trade relations the two nations enjoy, Japan is unhappy with India’s decisions to place a minimum import price and other assorted duties to protect its domestic steel industry. Japan claims this has halved its steel exports to India in the last year.

Working quietly on the sidelines, Indian government officials having been trying to iron out differences with their Japanese counterparts and settle the dispute in consultation but, so far, the sides have not had much luck. According to a news report, India’s Director-General of Safeguards and the Ministry of Steel were assessing points raised by Japan against the calculation of safeguard duties so that they could counter Japan and defend the duties before the WTO. India, obviously, does not want Japan — for that matter any other nation — to escalate this matter into a full-fledged dispute at the WTO.

But why is Japan reacting now, especially since some of the restrictions have been in place in India for almost two years? Analysts say that with U.S. President Donald Trump raising the cry of “America, First,” Japan is now concerned that it could lose a large chunk of its steel export market, and thus, is making an open stand for what it considers free and fair international trade. India is just the proxy country used to fight a larger war against MIPs and other border taxes.

A Japanese industry ministry official, explaining a Dec. 20 request for WTO dispute consultations with India over steel safeguard duties and the MIP for iron and steel products, said it needed to stop unfair trade actions from “spreading.”

India imposed duties of up to 20% on some hot-rolled flat steel products in September 2015, and set a floor price in February 2016 for steel product imports. India’s anti-dumping duty amounts to $474-557 a metric ton on hot-rolled flat products of alloy and non-alloy steel imported from China, Japan, South Korea, Russia, Brazil and Indonesia in August. These nations account for almost 90% of India’s steel imports.

Two-Month Trial: Metal Buying Outlook

Russia and Taiwan, too, may join Japan in requesting consultations at the WTO over India’s use of a MIP regime. Proceedings could start as early as February.

After ordering, yesterday, that the Keystone XL and Dakota Access pipelines be moved forward, President Donald Trump issued another executive order that required them, and all pipeline projects, to use only American-made steel.

Click Here for Current Metal Prices

According to Trump’s memo, steel produced in the U.S. must be used “for all new, expanded or retrofitted pipelines in the United States.”

It further defined “produced in the United States” to:

  1. With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the U.S.
  2. Steel or iron material or products manufactured abroad from semi-finished steel or iron from the U.S. are not “produced in the U.S.” for purposes of this memorandum.
  3. Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.

This definition differs a bit from the existing Buy American Act of 1933, which required the federal government to prefer U.S.-made products in its purchases. The Hoover administration-signed act was essentially extended to procurement for federal surface transportation products with the similarly named Buy America Act of 1983 during the Reagan administration.

Will President Trump’s “American-made” definition mean a boom for U.S. steel pipe manufacturers? Source: Adobe Stock/Pavelyudin.

Shortly thereafter, Miller extended those Reagan-era beliefs and standards to beer production.

Buy American… If You Can

All kidding aside, according to the Buy American Act, in certain government procurement situations, the requirement to purchase U.S.-made steel may be waived by the contracting officer or the head of the contracting activity under certain conditions: If the domestic cost is 25% or more expensive than if foreign-sourced, if the product is not available domestically in sufficient quantity or quality, or “if doing so is in the public interest,” a virtual elastic clause that has allowed substitution on federal projects for decades.

That 25% can be a high hurdle. For Department of Transportation projects, the cost of the American component must be so high as to increase the entire project contract cost by 25%, not just the cost of the specific item. For example, in a bridge project, the cost of a U.S. girder would have to be so high as to increase the whole bridge project cost by 25%, something that rarely if ever happens.

On non-DOT construction projects under the Buy American Act, the Federal Acquisition Regulations (FAR) specify adding a 6% cost differential in comparing bids. The relevant section (48 CFR 25.204 section b) reads “Unless the head of the agency specifies a higher percentage, the contracting officer must add to the offered price 6% of the cost of any foreign construction material proposed for exception from the requirements of the Buy American statute based on the unreasonable cost of domestic construction materials…”

Read more

Two years ago, India overtook the U.S. to become the third-largest steel producer in the world, but now finds itself a net importer of steel in 2015-16.

Click Here for Current Metal Prices

To address this and other steel issues, the Indian government has drafted and recently released a “National Steel Policy” for 2017. The policy aims for production target of 300 million metric tons per year by 2030-31, up from the current 122 mtpy, a reduction in imports and also a hike in the current production of a crucial raw material, coking coal.

India’s steel ministry says the policy is an effort in steel circles in India to steer the industry to achieve its potential and a strategy to overcome various hurdle such as high input costs, lack of availability of raw materials, and to try to achieve the 300 mtpy target in an environmentally friendly manner so that the country can reach its correspoding global efficiency benchmarks.

A major disadvantage that the Indian steel sector faces is the limited availability of essential raw materials like coking coal, both in quantity and quality. Most steel producers have to depend on imports to overcome this impediment, mostly from neighboring China.

The National Steel Policy aims at achieving increased domestic availability of washed coking coal so as to reduce import dependence on coking coal by 50% by 2030-31. Under the plan, India is aiming for per capita steel consumption of 160 kilograms per person from the present 61 kg.

Two-Month Trial: Metal Buying Outlook

India’s crude steel production in 2015-16 was 89.77 million metric tons. The country’s steel sector, the only silver lining in an otherwise bleak global steel economy last year, faced challenges. Heightened steel demand domestically in India could see it get there. In 2015, for example, India was the only large economy in the world where steel demand continued to grow positively at 5.3%, against negative growth in China at -5.4%.

The Steel Ministry is seeking comments on the policy draft from stakeholders and public.

The International Energy Agency recently upgraded its estimate for rising U.S. shale production this year, projecting output will increase by 500,000 barrels per day by the end of 2017, which will translate to an increase of 170,000 bpd averaged over the year.

Click Here for Current Metal Prices

Benchmark crude prices subsequently fell in London. In the first week of January, U.S. crude production rose to 8.95 million bpd, the highest level since April. Oil-rig use expanded to 529 in the prior week, a 67% increase from the 2016 low of 316.

Japanese Steel Officially Worried About Trump

Japan’s steel industry is concerned over the risks of a U.S. exit from the Trans-Pacific Partnership deal and reform of the North American Free Trade Agreement by the incoming Trump administration, a Japanese industry official said on Friday.

Two-Month Trial: Metal Buying Outlook

“We are worried about the risks of the Trump administration taking protectionism actions or policies,” Kosei Shindo, chairman of the Japan Iron and Steel Federation, told a news conference.

This week, the reality of a hard Brexit sunk in across the pond in the U.K. and Europe. The instability that might follow after elections in other European countries in the coming months could create volatility in all commodities markets, not just metals.

Click Here for Current Metal Prices

Here in the U.S., President Donald J. Trump was inaugurated today and promised “America first” in all the dealings of his new administration. In metals, this means that tariffs of 251% were confirmed on Chinese cut-to-length steel plate even before Trump even got into office. So, across the globe it looks like things are getting really, really populist. Is this good for metal prices?

Weaker Dollar

One thing that Trump has already caused, again before even being president, is a weakened U.S. dollar against other global currencies. Presidents and even presidents-elect usually refrain from even talking about the value of the currency because setting its value is seen as the job of the Federal Reserve and its chairman and the nation’s chief executive talking about the value of the dollar can cause volatile swings in the currency.

Two-Month Trial: Metal Buying Outlook

Trump, though, as everyone should know by now, does not obey convention and freely told reporters that he would like a weaker dollar. This is actually bullish for the metals we track, but our Lead Forecasting Analyst, wrote this week that the dollar’s bull run may not be over, despite Trump’s wishes.

Populism in the Far East

Indonesia tried a protectionist raw ore export policy way back in 2014 and this week finally weakened it (a little) to allow some nickel ore out of the country on certain conditions. Ironically, the country that picked up the slack as the top Chinese nickel-pig-iron raw materials supplier after the Indonesian ban, the Philippines, now has its own wildly populist leader, President Rodrigo Duterte, whose fiercely environmentalist Environment Secretary, Regina Lopez, has cancelled six mine permits.

It’s going to be an interesting few years.

The Commerce Department made final determinations today in its anti-dumping and countervailing duty investigations of carbon and alloy steel cut-to-length (CTL) plate from China.

Click Here for Current Metal Prices

The department said in a statement that it has set a final dumping margin of 68.27% for Jiangyin Xingcheng Special Steel Works Co. Ltd., the only respondent in the case, “for the China-wide entity’s failure to cooperate.”

In the countervailing duties investigation, Commerce calculated a final subsidy rate of 251% for mandatory respondents Jiangyin Xingcheng Special Steel Works Co. Ltd., Hunan Valin Xiangtan Iron & Steel, and Viewer Development Co., Ltd., based on the application of adverse facts available. All other producers/exporters in China were also assigned a final subsidy rate of 251%.

Chinese Province Admits Making Up GDP Figures

China’s northeastern Liaoning province, which relies on steel production as its growth engine, had inflated its GDP figures from 2011 to 2014, said province governor Chen Qiufa on Jan. 17 in his annual work report, according to the state newspaper People’s Daily (link in Chinese). It is the first time the Chinese government has publicly admitted to faking official statistics at any level.

Two-Month Trial: Metal Buying Outlook

Fiscal revenues were inflated by at least 20% during the period, and some other economic data were also made up, the People’s Daily said.